The landscape of cryptocurrency investment products in the United States continues to evolve, with the latest frontier involving exchange-traded funds (ETFs) that incorporate a staking component. However, recent filings for such innovative products have immediately encountered significant regulatory hurdles, highlighting the U.S. Securities and Exchange Commission’s (SEC) cautious approach to novel crypto financial instruments.
Proposed Staking ETFs and Their Structure
In a notable development, investment firms REX Shares and Osprey Funds recently submitted applications for new ETFs designed to invest in leading cryptocurrencies, specifically Ethereum (ETH) and Solana (SOL). Crucially, these proposed funds aim to go beyond mere asset holding; they intend to stake a substantial portion, at least half, of their underlying crypto assets. This staking mechanism is designed to generate additional yield for the funds’ investors, blending traditional ETF structures with a core feature of proof-of-stake blockchain networks.
The proposed ETFs are structured as C-corporations, a framework often used for publicly traded companies, but their integration of direct cryptocurrency staking for yield presents a unique challenge to existing regulatory definitions. This innovative approach seeks to provide investors with exposure to crypto assets while also capitalizing on the passive income opportunities inherent in staking.
SEC’s Immediate Regulatory Scrutiny
The SEC’s response to these filings was swift and direct. Shortly after the applications were submitted, the agency issued a letter indicating “unresolved questions” regarding their compliance with federal securities laws. A primary concern revolves around whether these staking-based products can legitimately be classified as investment companies under the Investment Company Act of 1940.
The Commission also took the unusual step of requesting that the issuers postpone the launch of these funds. Furthermore, the SEC demanded disclosure of all prior communications between the firms and the regulator, signaling a deeper level of inquiry into the nature and intent behind these products. Greg Collett, General Counsel for REX Financial, affirmed that the firms do not plan to proceed with the launch until these legal questions are fully addressed and SEC approval is secured.
The Road Ahead for Staking-Based Funds
The path forward for staking ETFs appears complex. While spot Ethereum ETFs have already begun trading in the U.S. market, Solana currently lacks a foundational spot ETF approval. This means any Solana-based staking product faces a dual layer of regulatory review: not only must the staking mechanism itself clear the SEC’s hurdles, but the underlying Solana asset also needs to gain independent approval for spot ETF inclusion. The ultimate fate of staking-based ETFs will hinge on how the SEC interprets their structure and the legality of the assets involved within the existing regulatory framework.
Former Wall Street analyst turned crypto journalist, Marcus brings a decade of expertise in trading strategies, risk management, and quantitative research. He writes clear, actionable guides on technical indicators, portfolio diversification, and emerging DeFi projects.